Decision Could Allow Anonymous Political Contributions by Businesses

The Supreme Court decision last month allowing corporations to spend unlimited money on behalf of political candidates left a loophole that campaign finance lawyers say could allow companies to pay for extensive political advertising while avoiding the disclosure requirements the court appeared to leave intact.

Experts say the ruling, along with a pair of earlier Supreme Court cases, makes it possible for corporations and unions to donate anonymously to nonprofit civic leagues and trade associations. The groups can then use the money to finance the types of political advertisements that were at the heart of last month’s ruling, in Citizens United v. Federal Election Commission.

Well before the Citizens United case, certain types of nonprofit organizations were able to pump millions of dollars into “electioneering communications” — highly pointed commercials about political issues that can even mention specific candidates — without revealing their donors.

For the first time, though, as a result of the ruling, corporations will be able to spend unlimited amounts of money on advertisements expressly advocating for a candidate’s election or defeat. The ruling also clears the way, for the first time, for corporations to donate money to nonprofit groups that place advocacy advertisements.

A 1986 Supreme Court decision, Federal Election Commission v. Massachusetts Citizens for Life, opened the way for certain narrowly-defined nonprofit groups to advertise for and against political candidates. However, the 1986 decision forbade corporations and unions to give money to nonprofit organizations that financed advocacy advertisements. The Citizens United decision lifts that ban.

That means that those nonprofit groups, which are not required to disclose their donors, can now use corporate contributions to buy political commercials, and the corporations can potentially operate behind the anonymity of their donations.“Clearly, that’s where the action’s going to be,” said Kenneth A. Gross, a Washington lawyer who advises corporations on political law.

While last month’s decision allows corporations to spend without limit on advertising for or against candidates, if they do so directly, they will have to report their expenditures and identify their donors. Mr. Gross said corporations are often loath to have their names attached to such advertisements. The nonprofit groups, with their legal ability to withhold donors’ names, offer an attractive alternative, he said.

Democratic Congressional leaders called the loophole dangerous, and they have proposed legislation that would require nonprofit groups to identify publicly the sources of financing for their political advertisements.

Mr. Gross, a former associate general counsel for the Federal Election Commission, said he generally supported disclosure requirements, though he said some of them might be hard to enforce. He also questioned whether some of the legislation’s other provisions would hold up in court.

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Senator Charles E. Schumer of New York proposes requiring nonprofit groups to identify donors for political advertising.Credit
Stephen Crowley/The New York Times

The McCain-Feingold campaign finance law, passed in 2002, sought to limit the use of attack advertising late in election campaigns. It imposed restrictions on the types of broadcast, cable and satellite advertisements that could appear within 30 days of a federal primary or within 60 days of a federal general election.

“Electioneering communications,” as the McCain-Feingold act calls the advertising, are required to focus on issues rather than candidates. They can name candidates in regard to a political issue, like a particular bill, but they cannot call for a candidate’s election or defeat.

McCain-Feingold barred corporations and unions from financing electioneering communications. In 2006, however, the Supreme Court, in Federal Election Commission v. Wisconsin Right to Life, held that it is unconstitutional to bar corporations from spending their money on electioneering communications.

Election commission rules require that organizations and individuals placing advocacy advertising or electioneering communications report their expenditures and identify donors who gave them money for those purposes. Many nonprofit groups, however, have taken the position that their donors and dues-paying members did not give them money specifically for political uses. Therefore, the groups have maintained, they are not obligated to name contributors.

It is impossible to know whether corporations or unions are taking advantage of the new freedom to funnel pro- or anti-candidate money through nonprofit organizations. Election commission data on electioneering spending may offer a glimpse of the future, though.

After the 2006 Wisconsin Right to Life decision, there was no sudden surge in direct corporate spending on issue advertising. Electioneering communications spending by nonprofit groups that did not identify their donors, however, increased sharply. Of the $98.7 million in electioneering communications reported in the 2004 cycle, virtually all was accompanied by identification of at least some donors. In the 2008 cycle, over one-third of the $116.5 million reported was not accompanied by donor identification.

The United States Chamber of Commerce was the biggest spender on electioneering communications not to identify any donors.

Among provisions in a bill proposed this month by Senator Charles E. Schumer of New York and Representative Chris Van Hollen of Maryland, both Democrats, is a requirement that nonprofit groups engaging in political advertising set up accounts specifically for that purpose. The bill would require that the nonprofit organizations identify people and groups who contribute directly to those accounts, or whose dues or other donations are transferred from other accounts into the political accounts.

The bill would also require organizations that raise outside money for political advertisements to list their top five contributors at the end of a commercial. In addition, an advertisement would have to display a statement from its No. 1 donor accepting responsibility for its content.

The bill would prohibit companies that received federal bailout money — as well as companies that hold federal contracts and companies that are more than 20 percent owned by foreign entities — from making political expenditures. It would also bar a company from doing so if a majority of its board consists of foreign principals, or if its operations in the United States or its political decision-making is controlled by a foreign entity.

“We think everything in this bill will stand constitutional muster, and we drafted it with that in mind,” he said.

A version of this article appears in print on February 28, 2010, on page A25 of the New York edition with the headline: Decision Could Allow Anonymous Political Contributions by Businesses. Order Reprints|Today's Paper|Subscribe